US Airways Trims Growth Plans in Wake of Failed Merger with United Airlines

Friday, August 3, 2001 03:24 PM ET

CHICAGO -- US Airways Group Inc. (U, news, msgs), reacting to the termination of its planned merger with UAL Corp.'s (UAL, news, msgs) United Airlines, will scale back growth plans for the remainder of 2001, the company said in a filing Friday to the U.S. Securities and Exchange Commission.

US Airways, of Arlington, Va., said the moves would help better balance the capacity with demand. The company is also "moving forward to address the competitive environment," according to the filing.

As a result of the slowing economy, the airline industry continues to experience weakness in business travel. Business bookings through the end of July "remain depressed," the company said.

US Airways, the sixth-largest airline in the U.S., expects capacity for the third and fourth quarters of 2001 to increase 4.5% and 1% respectively on a year-over-year basis.

The company is evaluating its fleet plan beyond 2001, which could result in the accelerated retirement of certain older aircraft, delays in taking new aircraft, or a combination of the two. The results of the evaluation, as well as indications of possible material changes to the market value of existing aircraft, will likely result in an impairment charge, the company said.

Several major labor groups at Delta Air Lines Inc. (DAL, news, msgs), American Airlines Inc. (AMR, news, msgs), Northwest Airlines Inc. (NWAC, news, msgs) and UAL have either recently ratified new contracts or are actively negotiating. Based on the increases provided by the other airlines, US Airways expects its personnel costs to "increase materially" in 2002.

US Airways' regional jet operators flew 59 regional jets as part of the company's US Airways Express unit as of July 31. The company expects to increase the number of regional jets to 70 by the end of the year, it said in the filing. US Airways said it has used the regional jets to add new markets and to upgrade high-load turboprop flights. It also has substituted these jets for larger aircraft with low load factors.

The company's pilot-labor agreement currently limits the use of regional jets to 70 aircraft, but the company seeks to add more and is meeting with its pilot union representatives to amend the original agreement.

Last month, the Justice Department said it would sue to stop UAL's proposed $4.3 billion acquisition of US Air on antitrust grounds.

The Justice Department's move appeared to cut short for the foreseeable future what was expected to be a new round of big airline mergers, even as the industry posts slumping revenues and big losses brought on by rising fuel and labor costs and a sudden drop in business travel -- a mainstay of airline profits.